Most predictions concerning 2024 and the debt management market expect significant growth. There are multiple reasons for this – e.g., experts in the US point out buy-now-pay-later options (likely to echo as early as the first quarter of the year following the busy December for shoppers), while others see it as the post-pandemic aftermath. While this creates space for debt collection agencies to grow, the market will require them to adapt and change accordingly.
On the less bright side of things, debt growth may go hand-in-hand with frustration and insolvency on the customer’s side. For a business in debt management, it’s paramount to act as a financial partner and not a threatening force knocking on someone’s door.
Therefore, this article highlights 12 techniques and areas where any debt management firm can look to build a competitive advantage, excel as a debtor-friendly partner, or embrace new technologies to make operations more efficient.
Let’s jump right into them.
- Early Notification
Shortly after an account becomes delinquent, the end client receives a notification about the outstanding debt. In some countries, specific rules are set for this type of communication (e.g., FDCPA in the U.S.), which assumes that the person in debt needs to be formally informed about the situation, typically in a letter or an e-mail.
This process can be easily improved with AI software for document reading. Since most contact information is hidden in debtor case documentation, you should have access to it immediately, right?
That’s where such a tool comes in handy.
Document automation software includes a functionality called data extraction. The AI tool finds the information you specifically require by reading the document and analyzing its contents. In the case of the early notification process, you should pull deadlines included in the official documents, along with means of payment and amounts.
Now, to mark the indebted individuals, you may transfer this extracted data to your existing client management software or create a dedicated spreadsheet in Excel.
- Segmentation by Risk Level
Evaluating risks is a big part of collecting debts. By gathering all the info about the person who owes your business money, you can group each case based on how likely the client is to follow through on their payments.
Debt collection segmentation means sorting clients based on their likelihood of paying. Clients with a good track record get regular reminders, while those with a medium risk benefit from proactive steps. High-risk clients might need strong tactics, and the riskiest cases could end up in court. Make sure to approach each case in the best way to get the money back.
On top of that, make sure that you keep track of similar cases – quick access to data from resolved debt processes can make future proceedings much faster.
- Customized Payment Plans
The era of personalization enters almost every market, and debt management may tap into its benefits.
Individuals who struggle with paying their debt aren’t always trying to avoid paying at all. However, the common responses to debt agencies are largely narrowed down to poor financial decisions and bad management of their own budget.
In many cases, the initial encounter with a debt management representative is discouraging — research conducted in the UK saw that 50% of respondents have voiced their concern about harassment or aggression from debt collectors.
To increase the chance of successfully retaining the owed amount of money, you should offer customized payment options. These options give the debtor flexibility and put them back in the driver’s seat.
- Skip Tracing for Hard-to-Find Debtors
When it comes to chasing down people who owe money, finding them can be a real challenge. But you can track down those elusive debtors with the right methods like skip tracing.
One great way to skip tracing is through online databases and social media. You can search through these tools to find potential leads. Social media sites like Facebook, Twitter, and LinkedIn can give you a lot of info about where someone is and what they’re up to.
You’ve likely already teamed up with skip-tracing pros who are experts at finding hard-to-track-down folks. These specialists have access to all sorts of resources and techniques that can really help you find those slippery debtors.
Another valuable resource for skip tracing is using public records and address histories. By accessing databases that store information on property ownership, past addresses, and legal records, debt collectors can piece together a trail that leads to the debtor’s current whereabouts.
You can also employ AI document processing and classification software like Alphamoon to automate skip tracing. Such software can enhance skip tracing by automating the extraction of relevant information from diverse documents, such as court records, property records, marriage and divorce records, court records, etc.
This faster process accelerates identifying and categorizing crucial details, aiding you as an investigator in locating individuals efficiently.
- Legal Compliance Monitoring
When it comes to collecting debts, the legal aspect of it comes first. You’ve got to ensure you’re following all the rules and regulations – otherwise, debt collection firms can suffer from colossal penalties and fines. As a means of mitigating such risk, you need to set up systems to ensure you’re following federal, state, and local laws and industry regulations.
Let’s take a closer look at why legal compliance monitoring is so crucial in debt collection.
First off, you’ve got to have really solid systems in place to make sure you’re following all the rules. This means creating and implementing clear policies and procedures that match the laws and regulations. You’ve also got to regularly check for any potential issues and deal with them before they become big problems.
To stay on top of debt collection laws, keeping your staff educated and up to date is important. This means training them on the latest rules, ethical practices, and handling customer info properly. If your employees know the rules inside out, it can help protect your business from any legal trouble.
- Negotiation Optimization
Debt management is very much a “people business,” where customer relationship often defines the success of the whole process.
As a result, investing in negotiation techniques — from everyday reading, such as tips on improving debt recovery negotiations — to regular workshops for your team will improve your performance in the long term.
You may even seek inspiration and good practices in unrelated business types or markets – e.g., a “retro” is a well-known concept in start-ups that aims to trace back the mistakes made in each project to avoid making them again.
If you or your company is struggling to improve the recovery rate, maybe it’s worth taking a step back and looking for the patterns.
- Automated Communication
In correlation with the previous point, you need the highest communication standards to stay relevant and achieve a high recovery rate. One thing that helps is introducing automated communication.
This may include:
- Automated calling,
- Mailing journeys,
- Panel/app for indebted individuals to track their outstanding debts
The key is always staying in touch; automated communications help you remain that way.
- Incentivized Repayment Programs
Some debtors may try reducing the amount due — it’s a common practice that may increase the recovery rate but deplete the overall sum of the retained budget.
However, simple maths proves that sometimes it’s better to close more cases that are worth less.
By introducing various incentivized repayment schemes, your debtors are encouraged to pay earlier to cut on fees or stretch the repayment period to ease the pressure without you raising their additional costs.
Such incentives may also work in your company’s favor the next time someone is in debt again. A debt management partner who helped along the way is a go-to choice for clients.
On the downside, creating an incentive program is time-consuming and requires a framework to make certain clients eligible. And building such a program from the ground up is costly.
However, if you deploy document automation software, you’re halfway there already. By extracting data from client files, you can decide which information will be used as grounds for your decision regarding each debtor.
- Empathy Training for Collectors
As a debt collector, it’s beneficial to tap into your empathy. All to connect with debtors and navigate challenging conversations. Empathy training can improve your collection strategies and improve the overall customer experience.
Consider these key elements:
- Start by helping collectors see things from the debtor’s point of view
- Teach collectors active listening techniques for better communication
- Prepare collectors to handle emotional responses with poise
- Stress the significance of language and tone in collection discussions
- Incorporate fun exercises and role-playing scenarios into the training
- Offer continuous training, feedback, and coaching to collectors
Empathy training benefits both debtors and collectors, ultimately boosting the organization’s reputation and fostering stronger customer relationships.
- Customer Communication Preferences
Regarding debt collection strategies, understanding customer communication preferences is crucial in maintaining a positive relationship while pursuing payments. By aligning communication methods with customer preferences, businesses can increase the likelihood of successful debt recovery.
Here’s a closer look at navigating customer communication preferences in debt collection:
- Use various communication channels: Customers have different preferences about ways to communicate with you. Some prefer phone over mail, some would like to get an email. Adjusting to your customer’s preferences increases the chances of successful communication
- Personalizing communication: Address customers by their preferred name and acknowledging their individual circumstances can help build rapport and trust. Personalized communication shows customers they are valued and understood, potentially leading to more cooperative interactions
- Transparency and clarity: When discussing debt-related matters, it’s important to use straightforward and understandable language, avoiding jargon or complicated terminology. Clearly outlining the purpose of communication and providing relevant information can help customers feel informed and empowered to address their financial obligations
- Integration of Debt Collection Platforms:
Debt collection agencies can boost success by integrating debt collection platforms with CRM, predictive analytics, and automated communication tools. A robust CRM system manages debtor information while predictive analytics identifies patterns for targeted debt recovery strategies.
To streamline document handling, integrating an AI tool specialized in debt collection is beneficial for the overall process.
Here’s an exemplary stack that can help you streamline your operations:
- Alphamoon: Document Data Extraction
Description: Alphamoon automates document data extraction, leveraging machine learning to streamline information collection from invoices, contracts, and other relevant documents in the debt recovery process.
- DebtMaster: Debt Collection Software
Description: DebtMaster is a comprehensive debt collection software that automates workflow, manages accounts, generates collection letters, and provides analytics for optimizing collection strategies.
- PDCflow: Payment Processing and Communication Platform
Description: PDCflow facilitates secure and compliant payment processing through various channels, including online payments, ACH transfers, and credit card transactions. It also supports streamlined communication through text messages and email.
- CasetrackerLaw: Case Management and Legal Workflow
Description: CasetrackerLaw is a legal case management system designed for debt collection agencies. It organizes and tracks legal cases, automates document generation, and integrates with other tools to enhance overall efficiency in managing the legal workflow.
- Customer Feedback Analysis:
Understanding customer feedback is crucial for refining debt collection strategies. By analyzing feedback, you can identify pain points, areas of improvement, and successful tactics.
Let’s explore the process of customer feedback analysis in debt collection.
- Gathering feedback: Collect feedback through various channels such as surveys, direct customer interactions, and online reviews. Use open-ended questions to encourage detailed responses, and consider implementing rating scales to quantify satisfaction levels
- Categorizing feedback: Once collected, categorize the feedback into different segments based on common themes. This could include issues with communication, payment options, or overall experience. Categorizing feedback allows for a clear understanding of recurring concerns.
- Identifying patterns: After categorization, look for patterns within each segment. Are there specific trends or recurring phrases that indicate widespread customer sentiments? Identifying patterns helps address root causes and formulate targeted solutions.
Customer feedback analysis is valuable for enhancing debt collection methods, fostering better customer relationships, and improving overall business performance.
Use These 12 Strategies to Improve Your Debt Collection Process
And that would be it — 12 key debt collection strategies for success in 2024.
As a debt collection agency, you should remember a few things. These are ensuring legal compliance, optimizing negotiations, and embracing automated communication to enhance debtor relationships.
Understanding customer preferences and integrating debt collection platforms for streamlined workflows will elevate the debt collection process.
For expert assistance in automating debt collection and staying ahead, contact Alphamoon.
